Your Perfect Assignment is Just a Click Away

Starting at $8.00 per Page

100% Original, Plagiarism Free, Customized to Your instructions!

glass
pen
clip
papers
heaphones

Alabama A & M University Importance of Cash & Financial Analysis Discussion

Alabama A & M University Importance of Cash & Financial Analysis Discussion

Question Description

Part 1: Importance of Cash

Generating cash is the ultimate responsibility for managers today. Cash and cash flow are considered the “lifeblood” of a business.

How important has cash generation been for your current company or a prior employer? How is cash generation different from the concept of profit and loss (P&L) in accounting? Provide an example of how a company manages cash flow.


Part 2: Application of Concepts/Financial Analysis

Review the materials in the link below. Based on the materials presented in this link, discuss why financial analysis is important in the overall understanding of the financial performance of a firm. Be specific and give examples based on your experience or research.

Using Financial Statements to Understand a Business

Internal and external users rely on a company’s financial statements to get an in-depth understanding of the company’s financial position.

LEARNING OBJECTIVES

Explain how a company would use the financial statements to perform risk analysis and profitability analysis

KEY TAKEAWAYS

Key Points

  • By using a variety of methods to analyze the financial information included on the statements users can determine the risk and profitability of a company.
  • Financial statement analysis consists of reformulating reported financial statement information and analyzing and adjusting for measurement errors.
  • Two types of ratio analysis are performed, analysis of risk and analysis of profitability.
  • Analysis of risk typically aims at detecting the underlying credit risk of the firm.
  • Analysis of profitability refers to the analysis of return on capital.

Key Terms

  • reformulation: A new formulation
  • profitability ratio: measurements of the firm’s use of its assets and control of its expenses to generate an acceptable rate of return
  • ratio: A number representing a comparison between two things.
  • profitability: The capacity to make a profit.

The Role of Financial Statements

Internal and external users rely on a company’s financial statements to get an in-depth understanding of the company’s financial position. For internal users such as managers, the financial statements offer all the information necessary to plan, evaluate, and control operations. External users, such as investors and creditors, use the financial statements to gauge the future profitability and liquidity of a company.

The Balance Sheet: If an error is found on a previous year’s financial statement, a correction must be made and the financials reissued.

Financial Statement Analysis

By using a variety of methods to analyze the financial information included on the statements, users can determine the risk and profitability of a company. Ideally, the analysis consists of reformulating the reported financial statement information, analyzing the information, and adjusting it for measurement errors. Then the various calculations are performed on the reformulated and adjusted financial statements. Unfortunately, the two first steps are often dropped in practice. In these instances financial ratios are calculated on the reported numbers without thorough examination and questioning, though some adjustments might be made.

An example of a reformulation used on the income statement occurs when dividing the reported items into recurring or normal items and non-recurring or special items. This division separates the earning into normal earnings, also known as core earnings, and transitory earnings. The idea is that normal earnings are more permanent and therefore more relevant for prediction and valuation.

Normal earnings are also separated into net operational profit after taxes (NOPAT) and net financial costs. In this example the balance sheet is grouped in net operating assets (NOA), net financial debt, and equity.

Types of Analysis

Two types of ratio analysis are analysis of risk and analysis of profitability:

Risk Analysis: Analysis of risk detects any underlying credit risks to the firm. Risk analysis consists of liquidity and solvency analysis. Liquidity analysis aims at analyzing whether the firm has enough liquidity to meet its obligations. One technique used to analyze illiquidity risk is to focus on ratios such as the current ratio and interest coverage. Cash flow analysis is also useful in evaluating risk. Solvency analysis aims at determining whether the firm is financed in such a way that it will be able to recover from a loss or a period of losses.

Profitability analysis: Analyses of profitability refer to the analysis of return on capital. For example, return on equity (ROE), is defined as earnings divided by average equity. Return on equity could be furthered refined as:

ROE = ( RNOA )+ (RNOA – NFIR ) * NFD /E

RNOA is return on net operating assets, NFIR is the net financial interest rate, NFD is net financial debt and E is equity. This formula clarifies the sources of return on equity.

INSTRUCTIONS:

a) Main discussion with 300 word length

b) Three Response for the students post with 150 word length(First response with 150 words length and second response with 150 word length and third response with 150 word length each)

c) No plagarism

d) Three references and APA in-text citations.


"Place your order now for a similar assignment and have exceptional work written by our team of experts, guaranteeing you A results."

Order Solution Now

Our Service Charter


1. Professional & Expert Writers: Eminence Papers only hires the best. Our writers are specially selected and recruited, after which they undergo further training to perfect their skills for specialization purposes. Moreover, our writers are holders of masters and Ph.D. degrees. They have impressive academic records, besides being native English speakers.

2. Top Quality Papers: Our customers are always guaranteed of papers that exceed their expectations. All our writers have +5 years of experience. This implies that all papers are written by individuals who are experts in their fields. In addition, the quality team reviews all the papers before sending them to the customers.

3. Plagiarism-Free Papers: All papers provided by Eminence Papers are written from scratch. Appropriate referencing and citation of key information are followed. Plagiarism checkers are used by the Quality assurance team and our editors just to double-check that there are no instances of plagiarism.

4. Timely Delivery: Time wasted is equivalent to a failed dedication and commitment. Eminence Papers are known for the timely delivery of any pending customer orders. Customers are well informed of the progress of their papers to ensure they keep track of what the writer is providing before the final draft is sent for grading.

5. Affordable Prices: Our prices are fairly structured to fit in all groups. Any customer willing to place their assignments with us can do so at very affordable prices. In addition, our customers enjoy regular discounts and bonuses.

6. 24/7 Customer Support: At Eminence Papers, we have put in place a team of experts who answer all customer inquiries promptly. The best part is the ever-availability of the team. Customers can make inquiries anytime.